| Wed 19 Apr 2006, 11:14 | | Sappi/ Lereko - Announcement of a Black Economic E |
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SAP
SAVVI
Sappi/ Lereko - Announcement of a Black Economic Empowerment
Transaction
Sappi Limited
Incorporated in the Republic of South Africa
Registration Number (1936/008963/06)
Share Code: SAP & ISIN ZAE000006284
("Sappi")
Lereko Investments (Proprietary) Limited
Incorporated in the Republic of South Africa
Registration number (2004/013452/07)
("Lereko Investments")
ANNOUNCEMENT OF A BLACK ECONOMIC EMPOWERMENT TRANSACTION
1. INTRODUCTION
Sappi has concluded a black economic empowerment ("BEE")
transaction with Lereko Property Company (Proprietary) Limited
("LPC"), a company formed by a consortium led by Lereko
Investments which will include Sappi South African employees.
LPC will acquire a 25% economic interest in Sappi"s South
African plantation land portfolio ("the Sappi land") for an
amount of R224 million through a vendor-financed mechanism
("the BEE land transaction").
2. RATIONALE
Sappi is one of South Africa"s largest private landowners,
with in excess of 360 000 hectares across its commercial
forestry operations. The overriding objectives of the BEE
land transaction are to:
- introduce an empowerment shareholder who, over time, will
become the beneficiary of an unencumbered 25% economic
interest in the Sappi land;
- facilitate development projects identified and managed by
LPC, predominantly on areas of the Sappi land not used
for commercial operations, with the aim of enhancing
value generated from the Sappi land; and
- enable Sappi to continue its commercial operations.
LPC will have an exclusive right to participate, at its
election, in all commercial property development initiatives
on the Sappi land.
Through a formal selection process, LPC was identified as
being the most appropriate partner to assist Sappi in
unlocking value within its land portfolio to the benefit of
all stakeholders.
3. THE COMPOSITION OF LPC
The composition of LPC is illustrated below:
3.1 Lereko Investments (46,19% (1))
Lereko Investments is a company founded by black
individuals who have been involved in community service
and the liberation struggle since the 1970"s through to
the 1990"s and who continue to undertake community work.
They were influential in the unfolding of the South
African democratic process in the early 1990"s. These
individuals have since successfully established
themselves as business people.
Lereko Investments" mission is to be a leading player in
the black empowerment arena, focusing on selected sectors
of the economy where together with key stakeholders
(shareholders, management and employees and communities),
it will participate in the transformation of South Africa
with a view to enhancing the economic well-being of all
its stakeholders and creating long-term value for them.
Lereko Investments" founders are committed to
participating in value-adding, sustainable black
empowerment transactions.
(1) = Lereko Investments has the right to appoint the majority
of the board of directors of LPC
3.2 Malibongwe Women Development Trust (10,14%)
Malibongwe is a trust focusing on the upliftment of women
in South Africa. Malibongwe operates in all nine
provinces in South Africa and has a beneficiary base in
excess of ten thousand women.
3.3 Sappi workers trust (30,00%)
Sappi and Lereko both subscribe to the principle of
appropriate and truly broad-based participation.
Accordingly, a trust for the benefit of Sappi"s South
African employees who do not currently participate in
other company share incentive schemes will be established
to participate in the BEE land transaction.
3.4 AMB Capital (13,67%)
AMB Capital is a specialist empowered financial services
company offering a suite of niche services within the
South African financial services environment.
4. FINANCING BY SAPPI
In order to ensure that the BEE land transaction is
sustainable and generates a return for LPC"s shareholders,
Sappi has agreed to provide financing on the basis illustrated
below:
1. Sappi companies sell to LPC a 25% undivided ownership
share in the Sappi land subject to (2).
2 Sappi reserves a real right of use over the 25% undivided
ownership share to secure the continued conduct of its
commercial forestry operations on the Sappi land.
3. Sappi Manufacturing (Proprietary) Limited (a wholly owned
subsidiary of Sappi) issues preference shares to LPC on
which LPC will receive an agreed return for Sappi"s right
of use over the land. These preference shares are only
redeemable on the sale of the Sappi land.
4. LPC issues preference shares to Sappi Manufacturing ("the
LPC Preference Shares") on which Sappi Manufacturing will
receive a funding rate which is lower than LPC could
obtain from third party financiers to finance the
acquisition of land.
5. OTHER SALIENT FEATURES
5.1 Reservation of real rights
Sappi has reserved a real right of use over the Sappi
land to allow it to conduct its commercial forestry and
related operations.
5.2 Exit Mechanisms
After a period of 10 years from the effective date of the
transaction, LPC will have the opportunity to realise its
25% economic interest in the Sappi land based on an
independently determined market value, thereby allowing
LPC to realise the full capital growth in its investment
in the Sappi land.
In certain circumstances, Sappi will have the right to
acquire LPC"s ownership share. This will be at a pre-
determined premium to market value if exercised within
the first 10 years and at market value after 10 years.
In the event of Sappi exercising this right, LPC will
have the right to acquire selected areas of land not
exceeding 15 000 hectares in aggregate.
5.3 LPC obligation to redeem preference shares
LPC will not be required to make redemptions of the LPC
Preference Shares during the first 5 years but thereafter
will be obliged to utilise an agreed percentage of
accumulated proceeds received from any land sales and
other value adding initiatives to redeem the LPC
Preference Shares. This aims to ensure that, over a
reasonable period of time, LPC will effectively become
the economic beneficiary of an unencumbered 25% undivided
share in the Sappi land.
6. UNDERTAKINGS GIVEN BY LPC
The following material undertakings have been given by LPC:
- LPC will not be entitled to sell the 25% undivided
ownership share for an initial period of 10 years;
- LPC will remain a black controlled company for at least a
period of 10 years;
- No shareholder of LPC may sell their equity in LPC for a
period of 5 years; and
- Popo Molefe and Valli Moosa will retain a meaningful
effective economic interest in LPC for a period of 10
years.
7. CONDITIONS PRECEDENT
The BEE land transaction is subject to the following main
conditions precedent:
- The signature of certain supplementary agreements;
- Satisfactory legal and accounting opinions;
- The necessary consents of the Minister of Agriculture and
Land Affairs in terms of the subdivision of Agricultural
Land Act, 1970;
- Notification to the regional land claims commission as
contemplated in Section 11(7) of the Restitution of Land
Rights Act, 1994; and
- Approval of the registration of the real rights referred
to in 5.1 above in terms of the Deeds Registries Act,
1937.
8. FINANCIAL EFFECTS
The pro forma financial effects of the BEE land transaction on
the earnings, headline earnings, net asset value and tangible
net asset value per share of Sappi are not significant.
Johannesburg
19 April 2006
Financial Advisor to LPC
AMB Capital Limited
Legal Advisor to Sappi
Deneys Reitz
Legal advisor to LPC
WWB
UBS
Sponsor
Date: 19/04/2006 11:14:39 AM Produced by the JSE SENS Department
